Infrastructure doesn't mean squat really in keeping prices high. If anything, good infrastructure would mean cheaper oil because you can get more of it to your sales point faster.

That said, this current boom in production in the US really can't be compared to the gusher age. Production declines too rapidly to ever seriously grow volumes, and almost immediately after oil sniffs $80 you will see a serious slow down in domestic activity from most E&P companies. Resource plays are so heavily dependent on high prices and require new wells to constantly be turned on to keep production high that I'm not sure how that will affect supply.

Oil resource plays differ from gas plays significantly in how prolific they can be, so I don't think you'll see a similar over supply issue that you did with shale gas.

The future of the industry will definitely be interesting.

I haven't researched much into this, but I have a hard time relating the past busts with current global dynamics.

things that pop into my mind (vs. busts in the past):

-U.S. consumption / World consumption

-Additional (lack of) drilling capacity

-Where the new production is coming from (resource plays) and their declines

-Developing countries (i.e. China)

- Increased capital cost for today's drill wells (internal capital constraints)



I just don't see a real apples to apples comparison of now vs. the 80s or late 90s

WTI taking a beating today!

Much of what had been said above is true but always remember the 4 most dangerous words in investing "This time it's different"!

I'm not an O&G person, but I watchlisted this because these things interest me. Correct me if I'm wrong, but didn't US peak consumption already occur? I understand that developing countries (China, India, etc.) are driving the increases in world consumption, but as I recall hearing multiple times, US peaked sometime in the early to mid 2000s.

Saudis to cut production. Let's get it back over $100

Aren't we ramping up LNG exports?

My research shows this is a temporary fall in oil prices. I see oil back over $100 very quickly.

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I was working for an EPC in Houston in 2008-2009 before I shipped off to Singapore, that went from 5000+ people, down to 2500. Luckily, my particular discipline (I&C, automation) seems to weather the storms a little better than others. We get balanced out between upstream and downstream work.

I've got a lot of respect for my elders. I worked a trade starting at 16 (30 now) and put myself through college doing so. I loathe the fact that I get lumped in with "millennials" ..but I do have my own anecdotal observations from the places I've worked.

The older boomers have been clogging up companies/job market for at least 5-10 years... understandably so. A housing bubble and 2 stock market collapses made it impossible for a lot of guys to retire. In the EPC I was working for at the time, the only way to get a promotion was when someone died (usually of old age) or retired.

I know a lot of very talented guys caught in a career holding pattern because the company is so overloaded with guys who cant afford to retire.

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tons of them came back into energy marketing to get another payday. lots of them do jack sheet.

Arson,
Every bust in history has had completely diff global dynamics. You think that in 1983 anyone cared or heard of fracking or LNG or Chinese demand........ That's the entire point. During the booms new markets, new technologies, new players .......etc develop. It's always been that way.
Queso,
Every price drop since Spindletop has been temp. It's a question of duration.

Guys, every argument made , so far, is identical ( adjusted for nomenclature and tech) as to what we heard in 1983 and , to a lesser extent , 1991. Guarantee $50bbl by 84, drilling contracts till 89, insatiable global demand, emerging huge new markets, old ways of boom /bust obsolete, any price hiccup only temp.........

Doesn't there still have to be some trigger or mechanism that will make the price drop? Prices don't drop just because "it's time" for them to drop. You still haven't explained any fundamental reason for there to be a crash, just that you "feel it". That's called fearmongering.

OA - the reason this is "different" than the gusher age or any previous bust in history is because, during those times, operations were profitable even at a very low price per bbl.

Companies continued to produce because they continued to make money, even if it wasn't as much. Shale oil is almost entirely dependent on $80 oil to be profitable for 90% of the companies operating. This coupled with the fact that these wells decline like no wells in previous booms have makes me think that, yes, things are very different than in the 80s or 90s.

The closest thing we have to compare this boom to is the shale gas boom, and shale oil can't get to the same level. Demand is too high and decline is too sharp. While a pull back on prices and possible bust is completely within the realm of possibilities, most of us are just bringing up the point that the industry and its capabilities to sustain high oil volumes long term isn't the same as it was 30 years ago.

So I will chime in with Garland, what are your factual reasonings behind the impending bust?

Hard landing in China seems like it could be an economic event that drops demand to the level needed for a bust. I dont know what the odds of that happening are though.

I have difficulties in believing in a complete bust of the O&G like 83. I am old enough to remember $10 BBL and when your dad works in IT for a IOC, they tend to be one of the first on the chopping blocks when things go south.

I see some fundamental things different than before. One, Saudi (and OPEC) can't really turn on the taps and flood the market. If you look at the output, they may still have the same volumetric flow, but they are bringing online heavier crudes. Their Gahwar field is in decline. You also have other countries in OPEC that need oil to stay high; their budgets cannot take hits, as they have a spending issue (mostly fuel subsidies and food). Look at Egypt for an example. This is old (2012), but still relevant, I think.

A lot of the "easy" oil has been found and produced. We aren't at peak oil, but the basic price point has shifted. We can meet demand with supplies, but I doubt there is a gusher that would come online and flood the market. If anything, with the US, it has made us more insular to price swings, but we still base the prices on the world market. If OPEC cut production, I doubt we would have the 70's lines again, now we domestic production up.


That is just my take on things. I could see a slow down due to the elections and depending on how things swing, things can stay low for a little while or pick up because someone thinking "We won!" But that is my pure speculation. I seem to remember things slowing down before 'major' elections in the US every 2 to 4 years.

~egon

The price of all commodities is set at the margin. When there is one more barrel of oil for sale than a buyer needs then either the seller drops his price or goes home with it. It doesn't matter if it's oil, nat gas or farm raised catfish. It's impossible to predict exactly when that day will occur. But it will occur.

Aggie - that's correct. But since much of the US's domestic production is shale oil which declines sharply, I'm not sure how long a bust would last or how companies will react compared to the 80s. That's kind of my point. Volumes don't stay high for long unless companies are turning on new wells.

Oil down another 2%

Should we be buying DUG?

WTI down to 87

No Saudi cut = TIMBER! Nothing to keep it propped up in the near term. Don't underestimate a drop under $80. Houston, we have a problem...BUT Its been a great time to be short tight oil.

Charts look like $80 is coming. Will see.

What kind of effect do you think this will this have on the huge influx of engineers and O&G people that have recently joined and will soon be joining the industry? Will the large sums of money that has been thrown around to fill any engineering position dry up? Will recent hires (within the past 5 years) be staring possible termination in the face? Will there be large hiring freezes across the board and you'll see a lot of early 20's-mid 30's engineers looking outside of O&G? I think that discussion would be interesting.

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What kind of effect do you think this will this have on the huge influx of engineers and O&G people that have recently joined and will soon be joining the industry? Will the large sums of money that has been thrown around to fill any engineering position dry up? Will recent hires (within the past 5 years) be staring possible termination in the face? Will there be large hiring freezes across the board and you'll see a lot of early 20's-mid 30's engineers looking outside of O&G? I think that discussion would be interesting.

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There's a lot of folks set to retire in the next 5 years. IMO there will still be a need for experienced (5+ years) O&G professionals.

Don't fight the Fed.

Fewer Companies = Fewer Jobs = More People in Market Specific Industry = Change in Supply Curve = Consumer Surplus since QS > QD @ New Price P. So, I don't see how the market having more participants will have no wage or employment affect.

I don't think the glory days are over, but I think a lot of young professionals working in the O&G field are going to get a rude wakeup call regarding their salaries decreasing as competition for positions ramps up. Go to Midtown in Houston and the irrational exuberance is extremely apparent. Not only is a storm brewing, most new workers don't see it coming and aren't saving for it.

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What kind of effect do you think this will this have on the huge influx of engineers and O&G people that have recently joined and will soon be joining the industry? Will the large sums of money that has been thrown around to fill any engineering position dry up? Will recent hires (within the past 5 years) be staring possible termination in the face? Will there be large hiring freezes across the board and you'll see a lot of early 20's-mid 30's engineers looking outside of O&G? I think that discussion would be interesting.

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Many companies are hurting right now due to the freeze in hiring/lack of engineers in the early 2000s. That plus the huge number of folks that will probably be retiring in the next 5 years and I bet companies hold on to their current young folks. There may be some downsizing (part of why I'm watching this closely) but I doubt it's huge, at least for operators.

But I think new hires/students with 1-2 years of school left may have some trouble finding a job. There will be more jobs than there were in the early 2000s, but not like the last few years and in the gas boom of 2006-2007.

Be curious to hear from others with more experience in the industry, especially in regards to the current O&G climate and the huge numbers of new engineers and engineers near retirement.

from

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Gulf Coast crude is set to drop below internationalprices, after trading at a premium for the longest stretch in a year, as new
pipelines bring additional supplies to the region. Enbridge, Enterprise
Products Partners and Plains All American Pipeline plan to start bringing oil
from Canada, North Dakota and West Texas by the end of the year. That's likely
to push Light Louisiana Sweet, the benchmark for low-density, low-sulfur oil on
the Gulf Coast, below Dated Brent. It's been at a premium since September 22nd.
The US produced the most oil since 1986 last month. As LLS falls below Brent,
shipments to the Gulf Coast, where more than half the US refining capacity is
located, become less attractive. Imports from countries other than Canada sank
to the lowest level in 23 years in June. LLS was 94 cents a barrel more than
Dated Brent Monday, the 10th straight day it's been at a premium. That's the
longest stretch since August 2013. Enbridge in November will begin filling the
Flanagan South pipeline, which will carry crude from the Chicago area to
Cushing, Oklahoma. The pipeline will carry crude brought to the Chicago area
via Enbridge systems that extend into Alberta and North Dakota. While oil
stockpiles at the Cushing storage hub have fallen by 51% since January, inventories
in the Midwest outside of Cushing are at 68 million barrels, the highest on
record for this time of year. Following the Flanagan line-fill, Enbridge and
Enterprise will fill the Seaway twin pipeline starting December 1st. That
pipeline will more than double Seaway's capacity to Houston from Cushing to
850,000 bpd. Plains expects to complete its Sunrise pipeline in West Texas by
the end of the year. The pipeline will connect growing Permian Basin production
stored in Midland, Texas, with the BridgeTex pipeline in Colorado City, which
can transport the oil to the coast. While the Gulf Coast will eventually have
to reckon with a flood of new supplies, several factors may align to delay that
until 2015. Refineries in the Gulf are running at record rates for this time of
year, helping to deplete inventories, and new rail terminals on the East and
West Coast are expected to start operating before the end of the year.
Additional supplies of Mid-continent crude will make their ways to the East and
West coasts as more crude-by-rail facilities come online in the 4th quarter.
That helps alleviate a surplus from reaching the Gulf Coast. Falling Gulf
prices could have a ripple effect into inland oil fields, where prices are
lower because of transportation costs and storage bottlenecks. Crude in the
Permian is $9.65 per barrel less than LLS. Bakken crude at a rail terminal in
North Dakota was bid at $10.25 per barrel less than LLS yesterday. With new
pipelines bringing more supply to the Gulf Coast, Brent prices sliding,
refinery maintenance season coming, and US policy restricting oil exports, Gulf
Coast prices could eventually fall to levels that will challenge the economics
of developing marginal tight oil projects.

Source: Gas OilLiquids Daily - Oct. 8, 2014 Edition

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An article of interest to this thread...

http://www.marketwatch.com/story/can-saudis-beat-north-dakota-in-an-oil-price-war-2014-10-08

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What kind of effect do you think this will this have on the huge influx of engineers and O&G people that have recently joined and will soon be joining the industry? Will the large sums of money that has been thrown around to fill any engineering position dry up? Will recent hires (within the past 5 years) be staring possible termination in the face? Will there be large hiring freezes across the board and you'll see a lot of early 20's-mid 30's engineers looking outside of O&G? I think that discussion would be interesting.

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There's a lot of folks set to retire in the next 5 years. IMO there will still be a need for experienced (5+ years) O&G professionals.

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The O&G industry doesn't replace 30~40 years folks (those set to retire) with 5 years folks. Change that to 20+ and your getting closer.

I do think the industry has learned from the past and won't cut nearly like previous busts though if it comes to that

^ part of the problem. There aren't a whole lot of 10-20 year folks. There are a lot of near-retirees and 1-5 year engineers, though.

The O&G probably wants to replace the 30+ year guy with a 20+ year, but there aren't a lot of them. Plus, the 30+ year guys more than likely want to leave and do something else. My father is a prime example. Just wants to do something else after working for 35+ years at an IOC.

You will have to move people up quicker or pay people more to get the experience you "need". Which is funny, because it probably would/will be cheaper to pay someone to stick around rather than pay mercenaries for their experience. Thinking of the layoffs in the past to save some money but now having to pay more in the future. Time will tell.

~egon